James Paterek has spent his career creating and building businesses both organically and by making dozens of mergers and acquisitions (M&A) spanning over many years. In addition to performing his own transactions, he has also assisted many companies through M&As by providing leadership with a roadmap to ensure a smooth and efficient process. Understanding the complexity of a transition is necessary to help you work through this unique and sometimes fragile period without running into complications or issues with your core team or rank and file.
M&A Advice James L. Paterek Gives Leadership
James Paterek states that managers and business owners must provide a clear understanding of the purpose of the transaction and the ultimate objective, and how it will affect the company, especially all the employees. This transitional period often puts unique challenges on workers and can cause emotional and physical stress to be managed appropriately. Leadership must get ahead of this stage of the process because, if not, people will start to bail and seek other employment opportunities. Good communication skills and complete transparency are critical during this period, as they can keep your team focused and “in the know,” Jim Paterek explains.
There’s a saying on Wall Street with M&A “Sell the Buyer and Buy the Seller.” This means dumping the buyer’s stock as they may be inheriting the seller’s problems or unable to create the intended value and buy the seller’s stock for the obvious value appreciation, James Paterek shares.
First, you need to be transparent and open with your employees during this time, sometimes referred to as a “quiet period.”. Of course, it isn’t always easy to be open due to confidentiality agreements, especially if a company is publicly-traded. Still, it is critical because transparency helps keep people motivated and committed to the business. Suppose they know everything that’s happening during a merger (including how it may affect them). In that case, they will feel more comfortable about this process and avoid unnecessary confusion and agitation.
Second, you need to make sure you continue to build strong relationships with your employees. James L. Paterek states that it is vital to speak with your employees and figure out their fears and how they may affect their performance and career with the firm. For example, are they worried about losing their job after the transaction? Do they feel uncomfortable with the new direction of the business? This is especially important to covey not only to buyer’s employees but even more important to the seller’s employees as they’re even more concerned about what the transaction means to them. Think about how many businesses who buy companies only to fire half the seller’s staff and replace it with their existing employee infrastructure. This is called transactional operational efficiencies or, in short, layoffs! This is not unintended, and most buyers already know this prior to closing the transaction, and actually build into their pricing metrics and purchase price.
This is what Private Equity firms (often called a financial buyer) strive for as well as strategic buyers that are doing a “rollup.” A strategic buyer is a type of acquirer who is in the same business as the target company. Unlike a financial buyer, a strategic buyer looks for businesses that can easily and quickly integrate with its main operations. A strategic buyer may pay a valuation premium for a business because it attributes value to the synergies or “efficiencies” that can be generated by adding a complementary business to its existing operations. The value and probability that each strategic buyer assigns to the synergies can vary greatly. So, a seller really has two buyers they can sell to, a financial or strategic buyer. If they’re just looking to maximize value, they’re going with the highest bidder regardless of what happens to the company post-transaction. It’s not only a problem with for the selling company employees but for America in general. We are not building sustainable companies as Jim Collen’s the famous business author, espoused in “Built to Last” or “Good to Great,” but rather just future M&A target list. It’s the difference between what Steve Jobs did with Apple and AT&T or IBM. Although AT&T/IBM went down as some of the best spin-offs in B-Schools, which brought immediate value to their shareholders, what future value did it bring to the overall workforce of those companies or, better yet, the USA? Paterek asks.
With all that said, James Paterek insists that he strives to keep all employees employed post-transaction by thoroughly understanding the issues of the selling. If a company is broken, it’s not the employees that screwed it up but always the management, leadership, and/or owners. If you’re buying a broken company, terminate the C-Suite day one nine times out of ten, not the rank-and-file!. The people in the trenches often can tell you quickly what is wrong with the business they work for, but no one ever asked or listened to them. A savvy buyer does a bottom-up analysis and interviews of the organization. Naturally, the financial metric is important such as sales, profits, and working capital, but even more important are the three Ps: People, People & People.
James L. Paterek is the founder and former Chairman & Chief Executive Officer of Comforce Corporation, a publicly-traded human capital company that was ranked the fastest growing in its space for multiple years. Currently, Jim Paterek is the Chief Operating Officer of Millbrook support Services, Inc., a supplier of Physicians, Nurses, Advanced Practice Providers, and Allied Healthcare Professionals to government and commercial clients nationwide.